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Monday, December 19, 2011

NRIs Home In as Falling Rupee Makes Realty Cheap

Struggling builders net a windfall, plan to tap more 'Indians' abroad


The spiraling rupee is resulting in a windfall for builders around the country who were struggling for more than a year to sell new homes. In a three-day property show in Dubai last weekend, Indian builders were able to generate bookings for homes valued at over $50 million (around . 250 crore), which has prompted them to hop to other cities with large Indian population like London, New York and Singapore. Ever since the rupee started depreciating there has been increased activity by the non resident Indian (NRI) buyers as they pay in dollars. 
The benefits of the rupee depreciation, if added to the discounts being offered by developers, makes new homes in India cheaper by almost 30% in dollar terms. At the Dubai show, 70 companies including Unitech, Hiranandani Group, Vatika, Nirmal Lifestyle, Ansal Housing and Ireo showcased their 200 projects from Mumbai, Pune, Gurgaon and Ahmedabad. 
"International real estate invest
ment destinations, especially Europe and the Middle East are increasingly becoming uncertain. This, along with sharp depreciation in rupee, is attracting more NRIs towards Indian property markets," said Niranjan Hiranandani, managing director of Hiranandani group. 
Since August, the Indian currency has weakened nearly 20% against the US dollar. This, in addition to developer and project specific discounts has provided benefit of 25-30% to NRIs who are considering this as a good bargain. "Dirham, the currency of United Arab Emirates, being fixed to the US dollar is also helping Indian property market receive more at
tention from investors and buyers from the region," Hiranandani added. He expects the NRIs contribution in company's revenue to jump over 8% in the ongoing financial year, as against 3-4% earlier. "In three days most of the buyers have shown interest in paying the entire amount upfront to get the benefit of current currency rate. Of these, 53% people have booked these properties for own use while rest have bought with investment objective," said Sunil Jaiswal, chief executive of Sumansa Exhibitions, which organised the Dubai show. 
The Maharashtra Chamber of Housing Industry (MCHI), the representative body of developers 
from Mumbai and the Mumbai Metropolitan Region, is planning to organize a property exhibition in Dubai between January 12-14. And developers, who are witnessing fall in sales volume from local homebuyers, are hopeful of a strong rebound from there. 
The MCHI exhibition in Dubai will showcase around 300 properties developed by around 35 developers. "Prospects of sales to NRIs are bright this year, and therefore we are going to Dubai, London, Singapore, Doha and Hong Kong," said Zubin Mehta, CEO at MCHI. He expects the Dubai show to generate 15-20% higher bookings than last year's exhibition that saw bookings around . 70 crore and 
    housing finance compa
nies business at . 107 crore. 
While Sumansa Exhibitions is also looking at 
organising more property exhibitions in international cities with Indian population many developers are also looking to enter into a tie up or set up their sales and marketing offices abroad. 
The Upside 

• Rupee depreciation has made new homes in India cheaper by almost 30% in dollar terms 

• Builders sold homes worth $50 billion in a property show organised in Dubai recently 

• Increased interest by NRIs has prompted builders to organise such exhibitions in other cities with large Indian population

It’ll be a Downhill Ride on D-Street till March

Concerns about food subsidy bill & EU crisis to weigh on Sensex & rupee for some months to come

    An army of jumpy traders dumped stocks on Monday as a debt-ridden government promised to sell foodgrain to the poor at cheap rates. While they cut some short positions during the day to make money in a shallow market, the selling was strong enough to push the Sensex and Nifty down to their 28-month closing lows. Beyond the veneer of main indices, which were down 0.8%, the sentiment was worse, with 158 stocks hitting record lows and three stocks falling for every one that gained. A warning from Fitch about possible credit downgrades of European nations and a bleak forecast on India by brokerage CLSA also contributed to the downcast mood. 

The bleak undertone, deepened by the populist Food Subsidies Bill, was reflected in an ET poll of 20 fund managers and brokers on the stock market outlook for the next few months. According to the poll, benchmark indices could decline 22% by March 2012, after dropping about 25% so far. Worsening debt crisis in the Euro zone, coupled with wobbly finances of the Indian government, tops the list of worries about the market prospects in the near future. 
"We're pessimistic in the near term... 
We expect a lot of challenges in the first half of next year. December quarter is not likely to be good for companies with respect to earnings," said Sunil Singhania, head of equities, Reliance Capital Asset Management. "The government will have to address every issue possible — from deficits to development — to instil confidence among investors," he said. 
Concerns over the outlook of Indian equities worsened after CLSA's Christopher Wood, in his widely-followed report — Greed & Fear — said the Sensex could fall to 11,000-12,000 and the rupee could decline to 60 in the event of a "violent" selloff amid a potential "euroquake". "What is increasingly worrying from a more 
narrow market perspective is the potential for a reflexive vicious cycle in Indian assets, be it currency, bonds and equities, where negative news builds on itself," Wood said in a note that downgraded India from "overweight" to "neutral". "The key risk here is the currency, given the central bank's failure to defend the exchange rate more proactively and given the large dollar borrowing by Indian corporates and related "promoters", to use that rather unfortunate term." 
Of the 20 poll participants, four expect the Sensex to be in the range of 12,000-14,000 by March. Six forecast the index to be between 14,000 and 15,000. Expectations of the outlook improving reflected in the Sensex target for December 2012. All 20 participants expect the index to touch 16,000 to 18,000 by next year-end. 
Food Bill Leaves Marketmen Poorer Rising Bad Loan Fears, High Rates Shock Bank Futures 
Axis Bank hit the most, SBI, ICICI Bank & PNB among major losers 
NIHAR GOKHALE MUMBAI 
    Futures prices of select bank stocks crashed on Monday as fears of rising non-performing loans and high interest rates turned sentiment against the sector. While bank stocks in the cash market have been touching record lows over the past week, investors offloaded long positions and went short on contracts of large banks like SBI, ICICI Bank, Axis Bank and Punjab National Bank. 
At the end of trading hours on Monday, Axis Bank stock futures closed at . 835.55, at a significant discount of . 15 to the underlying cash price, which hit a 52-week low of . 850.65. Axis has been hit by heavy short selling since Friday, when a record 20% addition in open interest positions was accompanied by widening discounts. 
"There was a combination of short selling and reduction in long positions, as those overweight on the banking sector cut down on their holdings," said Monal Desai, VP and head – institutional equities (derivatives) at broking house Prabhudas Lilladher. 
State Bank of India saw a cut-down in over 1.3 lakh positions in open interest. The contract closed at . 1,626.85, down 2.6%. A discount of . 10 in early trade shrank to zero later in the day which means that traders closed their short positions. Likewise, ICICI Bank open interest reduced by 2.3 lakh, while the contract price declined by 2.3% to . 659.90. 
Some of these banks also have huge expo
sure to the weak power and infrastructure sectors, worrying investors about a possible rise in the number of bad loans. "Large banks always have a large exposure to the corporate sector. When you've an overall negative sentiment, the same will spread to the large banks," said Saday Sinha, analyst at Kotak Securities. 
Other stock futures facing the heat were Punjab National Bank, which closed at 3.5% down at. 790, and a discount of . 5 to the underlying stock. 
Shares of large banks, both private and public sector, have plunged in recent days with ICICI Bank and HDFC Bank dipping to their 52-week lows of . 641 and . 400.25 on Monday. SBI also slumped to its 52-week low Rs 1,598. SBI too hit a 52-week low of . 1,598, accompanied by a large pack of other public sector banks like Canara Bank, Punjab National Bank, Bank of Baroda, Union Bank of India, Indian Overseas Bank, among others. Bank Nifty index too touched its 52-week low of 7,801 on Monday. 
But it was Axis Bank which continued to face the maximum heat, at least in futures trading. It continues to trade at a discount of . 15. The contract saw 20% addition in open interest on Friday, leading to a record high of over 90 lakh positions. While 6.8 lakh open interest was added on Monday, the total hovered around 90 lakh. This indicates both short selling and exiting in long positions. 
Amit Gupta, head, derivatives, ICICI Direct advised clients in a morning strategy report to go short on Axis Bank futures, and long on Bank Nifty. This means Axis Bank may underperform Bank Nifty during the life of the strategy. "Axis Bank futures are at lifetime high open interest with significant short position. It has been the weakest of the lot. We expect the stock to remain below . 860 in the next 2-3 sessions," he told ET.


Thursday, December 15, 2011

Weak Rupee to benefit select IT, metal and pharma cos

SOME GAINERS

Mumbai: The sharp depreciation of the rupee—from around 45 per US dollar level to its current all-time low of 54 in about four months—has put most policy makers, corporates and economists on the back foot as they see it as a huge negative for the country. However, there are some companies from sectors like software, pharmaceuticals and metals & mining which stand to gain from the sliding rupee. However, the exceptions from this group are the companies with large foreign debt since their cost of servicing the debt, denominated mostly in dollar, will go up substantially. 

    Large IT companies, with substantial exports earning but almost no debt on their books, will benefit the most from the weakness of the rupee, a research report by global ratings major Standard & Poor's noted. "A falling rupee helps companies in the IT sector because they derive more than 85% of their revenues from customers outside India, and most of the inflows are in US dollars. In contrast, only half of the expenses are incurred in foreign currency," the S&P analysts said. Infosys, TCS and Wipro from the IT sector would benefit the most from rupee's weakness, because of their higher dollar revenues and low foreign debt. 
    The depreciating rupee would also benefit companies in the metals & mining sector because prices of their prod
ucts, like copper, lead, aluminium and zinc, are linked to international prices. However, the same is not the case for iron & steel companies. Among the gainers would be Vedanta Resources and Hindalco, while for SAIL and Tata Steel the impact is expected to be neutral to negative. 
    From the pharma pack, companies which have higher proportion of sales coming from exports and neither have forward covers nor any forex liability, stand to benefit the most from a sliding rupee, a report by domestic brokerage Emkay Global Financial Services pointed out. Divi's Laboratories is expected to benefit the most from the depreciation of the rupee and Emkay Global estimates a 37% upside in its earnings during the October-March period of the current financial year. The other gainers within this pack are Dr Reddy's Laboratories, Cipla and Sun Pharma, the report noted.



RBI sells dollars, curbs speculation as hits 54.3

Mumbai: The Reserve Bank of India on Thursday sold dollars through public sector banks and announced steps to curb speculation in the foreign exchange market by banks and corporates as it intervened to pull back the rupee from an all-time low of 54.3 against the dollar and help it close at 53.65. 

    After market hours, the 
RBI also announced a reduction in trading limits for banks. It added that forward contracts by businesses and foreign institutional investors, 
once cancelled, cannot be rebooked. Forward contracts are deals to sell the dollar at a fixed price in future. Exporters and investors enter into such deals to hedge against the risk of any sharp movement in the currency. 
SUPPORTING ROLE 
Impact of RBI measures: Thursday's steps will leave almost no room for speculation in forex markets. They will bring the rupee back a bit. But liquidity in the forex market is expected to dry up 
Expectations from today's mid-term policy review: No more rate hikes. RBI may announce its intent to ease rates in future. If RBI does ease liquidity or reduce rates, equity markets could take off, easing pressure on the rupee 
What else the RBI can do to support the rupee: 
There are several measures—sell dollars directly to oil companies, offer NRIs higher returns, or it could announce a scheme for overseas Indians to bring in their funds 
'Short-term steps to stabilize mkt' 
    The restrictions come in a week in which the rupee has seen its sharpest declines. The currency which closed last weekend at 52.04 had fallen to 54.3 by noon on Thursday. During the current year, the currency has fallen by more than 18%. Many traders were expecting the rupee to hit 55 against the dollar, had it not been for the central bank's intervention. The sharp depreciation has made crude imports more expensive and threatens to add to inflation which has only now started showing signs of easing. 

    RBI's hand was forced by the sharp depreciation as the negative expectations were turning out to be self-fulfilling. The central bank acted only a day ahead of its mid-term policy review on Friday when it is expected to announce its monetary stance for the current quarter. RBI is widely expected to hold rates after industrial production dipped 5.1% in October. 
    Announcing new measures in interbank dealings, RBI said banks must square up their dollar position by the end of the day. This has been enforced by reducing the net overnight open position limit for banks. On forward contracts, RBI said all such deals booked by both exporters and importers will henceforth be on a fully deliverable basis. If any participant is forced to contract the forward 
contract, he will not be eligible to receive any exchange gain. 
    "These are short-term measures which market participants understand are aimed at stabilizing the market," said Ashish Vaidya, head of fixed income, currency and commodities trading, at UBS. He added that while the rupee was expected to firm up, liquidity in the forex markets would reduce. 
    Dealers said the measures meant that convertibility on merchant account — which gave traders the freedom to book and rebook contracts at will — was temporarily suspended. This is not the last of the measures expected by the central bank. Other steps that RBI could possibly take include selling dollars directly to oil companies to prevent lumpy demand from driving up the dollar. 
The central bank could also look at offering non-resident Indians higher returns by removing limits on interest rates on NRI deposits. "The government could also look at a scheme to encourage Indians to bring home money parked overseas through a one-time scheme," said K NDey, director, Basix Forex. 
    There is another school of thought among bankers that believes that once RBI starts easing rates, equity markets will pick up and money will start flowing into India as growth picks up. However, with inflation remaining outside RBI's comfort zone, bankers feel a rate cut is unlikely on Friday.

Monday, December 12, 2011

Structured Realty Debt a Big Hit with HNIs

Experts find the trend disturbing as real estate cos facing low demand could default

Investment products structured around high-yielding real-estate debt are becoming increasingly popular among rich investors. Conventional money managers, however, view this as a disturbing trend as they expect real estate companies to face low demand, default on payments and fire-sell prime assets to raise funds over the next few months. 

Financial services institutions such as Barclays, JM Financial and IIFL Wealth, among other smaller players, are offering equity-linked real estate notes to rich clients who insist on capital protection, but would also like to pocket higher yields in real-estate debt and participation in equities, wealth managers said. Barclays, JM Financial and IIFL officials were not available for comment. 
An equity-linked real estate debenture is a typical debt note, but it differs from standard fixed-income product as the final payout is based on return of the underlying equity, which in this case is the Nifty stock basket. The structure follows an 80:20 ratio, where 80% of the funds are invested in debt papers issued by real estate companies. The fund manager uses the remaining 20% of the corpus to buy Nifty optionswhich ensures 100% participation in the stock market. 
Nifty-linked real estate debentures park nearly 80% of the money in high-yielding short-term bonds and non-convertible debentures issued by developers. According to three wealth managers, a typical structure would include papers of companies such as DLF, Lodha Developers, Purvankara, Unitech and HDIL having maturities in the range of 12 to 24 months and yields in the range of 11–14%. Some structures also have lowrated issuances of smaller real estate companies, which generate coupon rates in excess of 16%, wealth managers said. Affluent investors are advised to invest in the range of . 5-10 crore in this product, with a lock-in period of 18 to 24 months. 
"If all goes well, this product will deliver very high returns for investors," said the product head of domestic private bank. 
"Equity-linked real estate note is a high-risk product. The issuer, in effect, is bundling NCDs which they've bought from realtors and passing it onto investors. The structure could crumble if the developer defaults of payments," the
product head said. 
Issuers are taking adequate precautions to prevent payment defaults by making real estate companies keep three to four times collateral cover on their borrowings, wealth managers said. In the case of smaller real estate companies, investment product manufacturers only includ bonds that are raised to complete certain projects. "Issuers of such products are providing adequate cover by pledging assets (land or projects) three or four times the value, with debenture trustees," said Richa Karpe, director – investments at Altamount Capital. "However, one cannot rule out risk as 80% of the funds are locked in real estate papers," Karpe said. 
Sector analysts expect real estate companies to face headwinds in 
the form of low demand and lack of easy working capital loans. Property transactions in top Indian cities have declined 50–60% over the past six months as a result of higher home loan rates and artificially-supported property prices. According to Sunil Rohokale, CEO & MD, ASK Investment Holdings, which manages a . 1,000 crore real estate fund, real estate companies face two major risks – one, cash flows have dried up for most companies and second, the risk of de-leveraging. 
"We do not expect cash flows to return immediately even if rates start moving downwards. Realtors, in their desperate bid, may try to sell assets to deleverage themselves. This will shrink their assets significantly," Rohokale said. 
Investors in equity-linked real estate notes run the risk of developers not being able to complete their projects on time, he said. 
"Repayment of investors' money will only happen if there are cash flows… In the absence of it, we'll see lot of payment roll-overs happening," he said. 

Risky Bets 

• While HNIs insist on capital protection they also like to pocket higher yields in realestate debt and participation in equities 

• An equity-linked real estate debenture differs from a standard fixed-income product as the final payout is based on return of the underlying equity, which in this case is the Nifty stock basket

Economy Sends SOS as Factory Output Slumps

Rate cut calls get louder as first fall in two years shocks govt & markets

India's industria0l output fell for the first time in 28 months on the back of falling consumer demand and declining corporate investments, spooking the financial markets, but brightening the prospects of an interest rate cut. 

Production at factories, utilities and mines shrank 5.1% in October, far exceeding forecasts of a 0.5-1% decline, causing share indices to fall 2%, benchmark yields to drop, and the rupee to hit a new low of 52.61 against the dollar. 
    Last week, the government cut its 
growth forecast for the year to around 7.5%, but industrial output data released on Monday has raised fresh doubts about the economy's ability to meet even the new target. The industrial sector, which includes manufacturing, mining and electricity, accounts for almost 24% of the GDP. While every segment of the manufacturing sector contracted in October, capital goods output declined as much as 25.5%, suggesting a near shutdown in corporate investments and expansion. " I have been saying GDP growth will not exceed 7% (this year) and I am doubtful that the next year would be even 6%," said engineering goods major L&T Chairman AM Naik. Ficci Secretary-General Rajiv Kumar said manufacturing growth in India had reached 'crisis levels', and joined rival industry association Confederation of Indian Industry in calling for immediate rate cuts. 
But C Rangarajan, former Reserve Bank of India governor and chairman of the Prime Minister's Economic Advisory Council, said there was a need to watch inflation for some more time before taking action. 
Production of Durables & Consumer Durables Fell 
"Immediately, the RBI may take a pause. But, unless (inflation) numbers clearly indicate a decline, there may not be a policy reversal," he said. 
The RBI has raised policy rates by 375 basis points since March 2010 to combat inflation, which has not fallen below 9% for the past 11 months, but is now beginning to show signs of easing. Food inflation, a big driver of headline inflation, eased to 6.6% in middle of November, a near three-and-ahalf-year low. 
"It is reasonable to assume that the RBI will be far less hawkish in its next policy review on December 16 as inflation has started to retreat and might initiate some easing actions," said Saugato Bhattacharya, senior VP and economist, Axis Bank. 

The central bank may first cut cash reserve ratio to ease liquidity. "Repo rate cuts, which will likely be preceded by a CRR cut, could now come as early as Q2 of 2012," said Mole Hau, economist with BNP Paribas, in a note. Other economists, too, said they did not expect the RBI to effect rate cuts in the December 16 policy review. 
Production of durables and consumer durables declined together for the first time since February 2009, a clear sign of weak consumer demand, as overall manufacturing output slid 6% in October. 

Experts say the contraction may have been exaggerated because of the base effect and the unusually late festival season last year. "Growth is slower, we also lost out on some days due to the festive season… overall the negative 6% might be exaggerating the decline," said Indranil Pan, chief economist, Kotak Bank. Last October, industrial output had risen 11.3%. 
Most economists are of the view that industrial growth should be better in the rest of the year, but not good enough for the government to achieve the revised 7.5% GDP growth estimate. 
"A low industrial production number would make achieving GDP growth of 7.5% extremely challenging," said Madan Sabnavis, chief economist, CARE ratings.

Slowdown hits home as ind’l output falls 5.1% in October

Capital Goods Worst Hit, Shrink 25%

New Delhi: Industrial production fell 5.1% in October—the first time since June 2009 that it has entered negative territory. The drop, largely caused by a contraction in manufacturing and mining output, has intensified fears of the economy entering a sustained phase of slowdown. 

    The capital goods sector-—seen as an advance indicator of sorts—shrunk by over 25% as companies put investment plans on hold due to falling sales of cars and durables. The electricity sector was the only segment to witness an increase but there are doubts over how long it can be sustained given the problems with availability of coal and environmental clearances. 
    TOI was the first to report 
on Thursday that industrial production was expected to shrink by around 5%, although initial estimates had put the fall at 7%. 
    What contributed to the decline? At the macro level, demand is falling as prices shot up last year due to higher commodity prices and rising income levels for most middle-class and rural house
holds. Also, higher interest rates have led to moderation in demand for several sectors that depend heavily on bank finance. 
    In addition, demand from developed markets has fallen, resulting in slower export growth. Also, given the high growth in October 2010, it was tough to sustain the pace of expansion this year. 
China, Brazil have begun monetary easing 
    Besides, there were seasonal factors such as strikes at Maruti's plant in Haryana and in coal mines apart from protests in Andhra Pradesh disrupting work in factories. "The October industrial production data could be exaggerating the extent of the weakness, as there were festival and holiday-related disruptions in production during the month," Deutsche Bank economists Taimur Baig and Kaushik Das said in 
a note for clients. 
    With several economists now redoing their math on the 7-7.5% GDP growth projection for the current financial year, there is expectation that the Reserve Bank of India will start cutting interest rates in the new year although governor D Subbarao may just signal that rates have peaked when he reviews the monetary policy on Friday. 
    The demand for faster easing of rates, after 13 hikes since March 2010, is expected to gain momentum as inflation rate too is 
expected to moderate. The government is due to release inflation data on Wednesday and economists and policymakers are already talking of inflation falling to 7% before March as manufacturers are cutting prices in the wake of dwindling demand. 
    With major emerging economies witnessing the adverse impact of the problems in Eurozone, several countries, including China and Brazil, have started easing monetary policy to spur growth. 
    Centre for Monitoring Indian 
Economy, a policy think tank, on Monday lowered the GDP growth forecast to 7.1% from 7.8% estimated earlier. In another report released Monday, OECD, the Paris-based agency, said India was in the midst of a slowdown. 
    While several economists had predicted that industrial output would shrink in October, it was the extent of the fall that surprised many. "Somewhat lower growth in industrial production was expected, but not negative growth," said PMEAC chief C Rangarajan.


What to look for in a financial planner

FOR most investors, paying for financial advice is still a no-no. Why should you have to pay money for something that experts give you for free? Yes, and no. As it turns out, the free advice churned out by agents, brokers and other financial 'experts' often proves costlier than going to a financial planner. Choosing a good financial adviser is as important as picking the right investment. You need to exercise due diligence and conduct background checks to assess the individual before you trust your finances to him. Run this checklist before you consult one. 

Qualification 
A certified financial planner who is affiliated with an established organisation is best equipped to give you advice on how to manage your finances. Check out his certification before signing the agreement. Keep in mind, however, that the certification is only an indicator of credibility, not a guarantee for the same. 
Reputation 
There are enough quacks in this field masquerading as surgeons. If a planner is knowledgeable and good at his work, he will have an impeccable reputation. Ask him for references and speak to his clients. Get this feedback before you sign the contract. 
Strategy over product 
Financial planning is 95% strategy and 5% product choice. The planner should work out the investment and saving strategy and leave the choice of products to the individual. If he starts by offering products, it's best to stay away from him. 
Multi-faceted approach 
The financial advice should not be confined to only a particular aspect of your finances. Unlike agents and salespersons at banks, the financial planner should look at all the facets of your financial life, including goals, risk appetite and long-term requirements, as well as tax implications of your investments. 
Independent functioning 
An adviser working for a financial services company, such as an insurance firm or a bank, might not be able to give you objective advice. A conflict of interest is likely to crop up at some stage. So, it is better to go for an independent adviser, who does not have a vested interest in pushing the products of a certain company. 
Research and support services 
The right advice is backed by adequate research. Your financial adviser should have such capabilities and should have access to the best technology and financial tools to select the appropriate product for you. He should also be clued in to policy changes and the forthcoming changes on the taxation front. 
    —ETW, May 23, 2011

Everyone is familiar with the crown jewels of the Tata empire. But there's a lot more to the group than the big companies

Tata Steel, Tata Motors, TCS, Indian Hotels, JLR , Titan… Everyone is familiar with the crown jewels of the Tata empire. But there's a lot more to the group than the big companies that make headlines ever so often. This week ET Intelligence Group zooms in on some of the relatively less-known parts of the diversified global conglomerate


ata Group companies have always drawn the attention of investors for their transparent business practices and investor friendliness. And, with the recent appointment of Cyrus Mistry as the successor of Ratan Tata, these companies are again in the limelight. While media reports have pondered over what this appointment means to the country's oldest business house, much attention has been also paid to the top breadwinners in the conglomerate. We at the ET Intelligence Group decided to analyse the smaller players in the group to understand what lies ahead for them and to help investors pick and choose the right bets. 
The House That Tatas Built 
There are over 30 publicly-listed companies in the Tata empire, with market capitalisation ranging from 56 crore (casting and forging company Tayo Rolls) to 2 lakh crore (IT giant TCS). These belong to a slew of sectors including technology, retail, metals, hospitality, chemicals, and engineering. 
Together, these companies have a market cap of over 4 lakh crore with the top five players based on their market capitalisation constituting nearly 90% of this. They include TCS, Tata Motors, Tata Steel, Tata Power, and Titan Industries. While these companies are more often on investors' radar, there are at least 18 companies that have a market cap of less than 3,000 crore and, barring a few exceptions like Voltas and Rallis, are not tracked too often by analysts and investors. Our focus is on these small cap and midcap companies in the group. 
Some of them are in the pink of health and look attractive at current valuations. These include Benaras Hotels, Rallis, and Tata Coffee. On the other hand, some companies like Nelco, Voltas, Tata Teleservices (Maharashtra), and Tinplate are finding it difficult to maintain growth due to various factors such as intense competition, slowing demand from users, and higher raw material costs. Read on to know which to pick and what to skip. 
    VOLTAS 
A household name for air-conditioners 
and refrigerators, Voltas has reported a significant drop in volumes and margins in the cooling business due to unfavourable weather conditions. Even as competition is stiff, the company is reluctant to compromise on the pricing front in this business segment so as not to damage its brand image. However, if the volumes fail to pick up in coming months, the segment margin may drop further. 
Voltas derives the major share of its revenue from the electrical & mechanical projects (EMP) business where it has a strong international presence in the Middle East. The current global turmoil has put pressure on its margins and new orders are hard to come by. Moreover, the company is currently under pressure to complete a couple of projects in Qatar despite concerns of cost overruns. The challenge here is to maintain its reputation as it bids to win some of the major upcoming projects in Qatar in the run-up to the FIFA World Cup in 2022 to be hosted in the country. 
    TATA TELESERVICES (MAHA) 
The telecom arm of the Tata Group 
has been struggling to report a net profit over the last several years and the task has become even more difficult with falling per user revenue and rising competition. 
Together with its sister concern Tata Teleservices, the company had 8.8 crore subscribers at the end of October compared with 9 crore in June. In the last few months, the company has lost customers to competition. In addition, only half of its users are active according to data from the Telecom Regulatory Authority of India. This is much lower than 80-90% active customers for its bigger peers including Bharti Airtel and Idea Cellular. With stiff competition from larger players, future prospects look gloomy for Tata Teleservices (Maharashtra). 
    TATA COFFEE 
Tata Coffee, a subsidiary of Tata 
Global Beverages, is an integrated coffee plantation company. The company earns its revenue from production and sale of coffee (cured and instant), tea and pepper and from tourism on plantation estates. It is engaged in the production of specialty and certified coffees for developed, premium-paying markets. 
Rallying coffee prices since last year have punctured the operating margins of the company's overseas subsidiaries. However, Tata Coffee as a standalone entity has registered record turnover and earnings during the first half of this fiscal aided by improved performance of the instant coffee division and continued growth logged by its plantations.
The outlook for coffee prices remains bullish with consumption exceeding supply and global inventories at an all-time low. A concrete business association with Starbucks Coffee can trigger further growth for the company. 

    TATA METALIKS 
Tata Metaliks manufactures and sells 
pig iron. It also provides customers with critical support across their entire business cycle thereby emerging as a one-stop shop for raw materials and end products. Though its sales have been growing at a moderate pace of 10-12% on average, the company has been reporting losses since the past six quarters on account of a spike in raw material prices. Unlike in the past, pig iron prices have lagged behind coke prices for the last four quarters. This has impacted the company's bottom line. 
The company is facing difficulties in sourcing iron ore on account of mining restrictions in the places where it operates. Until the company gains pricing power and overcomes its raw material sourcing hurdles, its profitability will remain under pressure. 
    CMC 
With a strong presence in the country's IT systems and integration sector for decades, CMC in a way complements the Tata Group's other technology companies. CMC earns half of its revenue by providing systems integration services to the government and private sector clients. It is also a high-margin business for the company with over 30% operating margin before depreciation. 
Though the company reported impressive double-digit growth in its profits in the last six years, it was mainly on account of better cost management. Revenue remained more or less stagnant during the period. 
The company's stock has lost 26% in the last year. It currently trades at a trailing twelvemonths P/E of 9. The domestic market for systems integration is rapidly developing, but CMC is yet to report any major improvement in its top line. Investors are advised to wait for a few quarters for cues on future growth. 
    TRF 
Material-handling company TRF is but 
a small fish in the group with market capitalisation of less than 300 crore. As the company's business is directly associated with the growth in the industrial sector, TRF too has been hit by slowing economic growth. 
Though the current order backlog of 1,275 crore gives TRF revenue visibility for more than a year, the order book size has been eroding consistently over the past few quarters as new orders have been hard to come by. The company is expected to bag a few orders from clients such as NTPC and Tata Steel in the near term. 
Another concern for TRF in the near term is its deteriorating operating margin and return on capital employed (ROCE). The company's consolidated operating margins have dipped from over 10% until a year ago to less than 5% in FY11 while 
a consolidated ROCE of 6.4%, for FY11 is the lowest in the past four years. 
    RALLIS INDIA 
Rallis India has come a long way from 
reporting losses in FY03 to becoming the most highly-valued agrochemicals company in India today. The company commands a P/E of above 23, higher than its bigger peers such as Bayer Cropscience and United Phosphorous. In last few years, the company posted a steady improvement in profits regardless of market volatilities. Recently, it acquired Metahelix to expand its presence in the seeds industry. 
After growing its net profit at a cumulative annualised growth rate of 36% between FY08 and FY11, the company seems to be facing some headwinds. During the first three quarters of calendar year 2011 its profits grew in single-digit figures. 
The company has a bright future with growing demand for crop protection products and better seeds across the world. It is setting up an additional unit in Dahej and is focusing on new products, R&D, registrations and exports to lead future growth. 
    TRENT 
Trent is the retail arm of the group. 
Unlike many of it peers, Trent has very high operating efficiency. In the retail business, growth generally comes by increasing sales in the same stores and also by increasing the number of stores. This requires large capital expenditure and high working capital for increasing the inventory. To earn good returns on the capital invested, inventory turnover has to be high and debt needs to be in control. 
Trent has one of the best inventory turnovers or the least inventory days in the industry, which reflects its efficiency. On average, it takes 60 days to sell inventory compared to 125 days for Pantaloon Retail (India). Trent's balance sheet is also comparatively stronger with a debt to equity of just 0.3. This means, the company has enough room to take loans for further growth. 
At a price of 963, the company is trading at a P/E of 46, which appears to be high on a trailing twelve-months basis, but is not as steep when discounted for its future earnings as stores take a couple of years to break even. Given its current expansion phase, investors can consider buying this stock at the current level. 
    TINPLATE 
Tinplate Company of India (TCIL) is 
the country's largest producer and supplier of tin mill products, which are used in the metal packaging industry. TCIL corners about 35-40% of the domestic market. Growth in the packaging sector is closely linked to the processed foods and beverage industry, which is ex
pected to grow at 18-20% in 2012. Over the past five years, its sales and profits have grown at a compounded rate of 13% and 14%, respectively. 
Though the long-term prospects are promising, the company's profitability has been under pressure on account of high input and borrowing costs. Since the March 2011 quarter, its sales and profits have been falling. In fact, in the September 2011 quarter its net loss almost doubled as it was not able to pass on the rise in raw material prices to consumers. Till this happens, the company's profitability will remain under pressure. 
    AUTOMOTIVE STAMPINGS 
Formerly known as JBM Tools, ASAL 
is part of the Tata AutoComp (TACO) group, the country's leading automotive components conglomerate. The company is engaged into the production of a wide range of sheet metal components for passenger and commercial vehicles and tractors. 
ASAL has posted a drop in sales and profit since last two quarters. It raised 29.5 crore through a rights issue in July this year. The company's stock has depreciated since last year, underperforming the broader market indices. 
    TATA ELXSI 
Bangalore-based Tata Elxsi is a niche 
player in the technical design segment. It offers embedded product design and industrial design solutions. It also provides animation and visual effects services and systems integration. 
Despite increasing opportunities across most of the business segments, Tata Elxsi has not been able to register impressive growth over the last four years. The company's revenue has not budged much from the 400-crore level while profits at the operating and net level have declined during the period. The erratic change in its sales and profits reflects the lumpy nature of its business. 
Tata Elxsi's stock has lost 26% in the last one year. Its trailing twelve months P/E works out to be 18.8, which is on the higher side when compared to the P/E range of 6-10 for IT companies of similar size. The premium valuation could be attributed to its exposure to the fast-growing animation industry. However, the company's performance so far does not instill confidence. Investors need to wait until there is some stability in its growth trajectory. 
    ORIENTAL HOTELS 
Oriental Hotels is an associate company of Indian Hotels Company - one of the largest hotel chains in the country. Indian Hotels Company offers technical assistance to Oriental Hotels, which has the Reddy group of Chennai as its chief owners. One of the flagship brands of the company is Taj Coramandel. Besides this, the company also runs other hotel units such as 
Fisherman's Cove, Vivanta by Taj and Gateway Hotels. Over the years the company has demonstrated impressive financial performance. Its operating margin is the best in the small-sized hotels segment. Even in the present situation of weak business, the company has an operating margin of around 28%. With the completion of rebranding and expansion of Indian Hotels Company in coming quarters, the company would see an increased flow of revenues. At present, the company is fairly valued. Its stock is commanding a P/E of 16. Its current stock price is at a 34% discount to its price a year ago. Investors are advised to buy into the stock with a horizon of one year. 
    TAYO ROLLS 
Jamshedpur-based Tayo Rolls (formerly Tata Yodogawa) is a subsidiary of Tata Steel involved in the manufacture of cast rolls, forged rolls, special castings & pig iron. Tayo is a company with mounting losses each quarter. Continued delay in commissioning and ramp up of a new project coupled with the temporary suspension of pig iron operations had affected the profitability of the company causing severe cashflow problems. The revenue of the company has also stagnated at 128 crore since the last two fiscals. The company's stock has fallen since March this year, underperforming the broader market indices. 
The roll industry is largely dependent on the steel industry. The current downtrend in the steel industry has compelled steel plants to have better inventory control management, due to which orders have been deferred resulting in poor offtake for companies like Tayo. The business of the company is likely to pick up once prospects for the steel industry improve. 
    NELCO 
Once a flagship technology company 
of the Tata group engaged in high-end telecommunications, Nelco's operations today are limited to remote telemetry and managed network solutions. The company's stock performance has been poor over the last year following lacklustre business outlook. 
Though the company's revenue grew at a moderate pace in the last five years, profits have dwindled. Revenue grew at a five-year compounded annual growth rate (CAGR) of 8.2% till September 2010, but the company failed to report consistent profits during the period. It reported an operating loss in each of the two years ended September 2011. 
The company's core business of remote telemetry solutions has been facing competition from smaller vendors. The division's revenue shrank by nearly one-third in FY11. The other division that delivers network solutions also failed to grow during the year. 
Nelco's stock fell by 58% over the last year. Given the bleak future prospects, it looks difficult for the stock to provide meaningful returns in the long run. 
    BENARES HOTELS 
Robust financial performance, nearzero debt, good dividend-paying record and advantage of location are major investment triggers for the stock of Benares Hotels. The company trades at a P/E of 11 times, which is relatively low. The company's presence in Varanasi, one of the main pilgrimage destinations in India, ensures a continuous flow of travellers. For years, the company has been recording a net profit margin in the range of 15-20%. This is far better than larger players like Royal Orchid Hotel and Kamat Hotels, which have a net profit margin of 10% and 1%, respectively. Given these factors, the stock looks promising for long-term investors. 
    MOUNT EVEREST MINERAL 
The company sells bottled natural mineral water under the brand named 'Himalayan'. Tata Global Beverages owns 40% stake in Mount Everest Mineral Water (MEMW). 
MEMW is a loss-making company logging annual sales of 20-22 crore since the last five fiscals. The company has entered into a joint venture with Nourishco Beverages, a company promoted by Tata Global Beverages and PepsiCo India Holdings for branding and manufacturing Himalayan Natural Mineral Water. Since February 2011, MEMW has been in the process of transferring sales and distribution of its product. This arrangement is expected to drive market reach and volumes of brand Himalayan, aided by wider market access of the premium network of Pepsico India Holdings. 
The company's stock has depreciated during the last nine months following poor financial performance. The company's business prospects hinge on the success of its joint venture with Pepsi and Tata Global Beverages. 

Contributed by Bakul Chugan Tongia, Crystal Barretto, Jwalit Vyas, Kiran Kabtta Survanshi, Rajesh Naidu, Ramkrishna Kashelkar, and Ranjit Shinde


 

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